FEATURE: Increasing Complexity in 2025 to Favour Bunker Industry's Largest Firms

Regulations, sanctions and geopolitics, credit concerns and digitalisation will bring headaches to the bunker industry in 2025

As the bunker industry enters 2025, the rapidly increasing complexity it faces is set to provide the greatest opportunities to its larger companies.

With each new year, the array of issues hitting the desks of the bunker industry's CEOs seems to grow wider.

This year, regulations, sanctions and geopolitics, credit concerns and digitalisation will all bring their share of headaches to the industry.

But these issues will also provide opportunities for some, and these will tend to favour the largest companies best able to adapt operations as the situation changes.

Emissions Regulations

2025 will be the year when the EU's emissions regulations for the shipping industry will start to bite.

For the emissions trading system, September brings the first deadline for surrendering allowances for emissions produced during 2024. This year also sees the phasing-in of the regulation reaching its next stage, with shipping now having to buy allowances for 70% of their emissions in Europe, up from 40% last year.

Some within the shipping industry will already have made arrangements for their EUA procurement, but many will not have. and face the prospect of entering that market in haste in the final months before the deadline. These less-prepared shipping companies will be looking to the bunker industry for help with their compliance plans, especially if shipping's rushed EUA purchases over the summer manage to drive a spike in EUA prices.

The FuelEU Maritime regulation has also come into force this year, mandating steadily-reducing carbon intensity for shipping in Europe. 

Demand for biofuel bunker blends, both within Europe and at hubs elsewhere in the world, is likely to expand significantly this year as a result. At bunker conferences in 2024 biofuels were already being discussed with equal standing to the conventional fuels, rather than as niche alternatives provided by specialists.

The greatest challenge in setting up biofuel supply will not come at the largest hubs, where by and large it has already happened, but at smaller ports with uncertain demand levels. Those most able to take advantage here will be ones with flexibility in their operations, who can secure supply and deploy a barge at short notice when demand suddenly emerges at a particular port.

The Mediterranean ECA also comes into force this year, bringing about a global decline in VLSFO demand in favour of MGO. Adrian Tolson of 2050 Marine Energy has forecast the new ECA to add 20.2% to global MGO demand and cut 3.1% from global fuel oil bunker demand.

And on the global level, the industry will be waiting for more news from the IMO on what shape global regulation on GHG emissions is likely to take. Once the IMO's MEPC meeting this year provides some clarity on that -- if further progress is possible at this stage -- the industry will need to adapt quickly.

Sanctions and Geopolitics

Global politics will mostly be a source of anxiety for the industry in 2025. 

The bunker industry has largely adapted to the effects of the wars in the Middle East and Ukraine, but a rapid change of any kind in either situation would bring large side-effects.

In the Middle East, the re-routing of most ships away from the Red Sea and Suez to take longer routes around Africa has become the norm, bringing an increase in bunker sales around the world and a reshuffling of demand among ports. Ports in the Mediterranean have seen the biggest falls in demand, while those around Africa -- excluding South Africa for now -- have seen the largest gains.

A rapid end to the Houthi movement's attacks on commercial ships from Yemen would necessitate another reordering of demand, as well as a cut in overall global sales as more efficient routes via Suez became viable again.

Equally, a heightening of the Middle East conflict that directly brought in Iran and other powers would bring a crisis to the shipping industry, particularly for tankers around the Strait of Hormuz.

When it comes to Ukraine, the industry largely adapted to the phasing-out of Russian fuel oil in 2022, and the main problem since then has been in managing sanctions risk. The world of sanctions compliance has become increasingly fraught with difficulty, in particular for the smaller suppliers without the means to carry out detailed checks into the companies and vessels they work with.

Elsewhere in the geopolitical world, the bunker industry should not ignore the apparent hostility towards Panama's government from the incoming Trump Administration in the US, with social-media posts from the new president over the holidays questioning the country's sovereignty over the Panama Canal. 

While these comments appear unlikely to lead to action, as the new administration will soon presumably find more urgent problems to address, the significant impact of any potential US conflict with Panama on global shipping means even a low-probability scenario where that emerges should be prepared for.

Credit Concerns

The bunker industry's access to credit is likely to come under strain this year.

The current state of the global economy appears fragile, in particular with increasing problems in China and the uncertain effect of the incoming Trump Administration on global trade, and this is likely to bring about increasing caution from lenders.

This comes at a time when the industry's need for working capital will be increasing, as the expensive alternative fuels become more mainstream and bunker bills generally increase.

The bunker firms most able to cope with this will be those best favoured by the banks. Having transparent operations, a detailed approach to sanctions compliance, advanced ESG plans and a secure financial model will all be crucial to securing the credit needed to operate and grow. 

Digitalisation

Finally, digitalisation remains an important theme facing the industry, and one which the smaller firms can no longer afford to ignore. 

Singapore's decision last year to impose e-BDNs on a mandatory basis from April will be a catalyst for further change. 

Mandatory implementation of electronic documentation at other major hubs appears unlikely for now. But shipping firms taking on bunkers in Singapore will start to get used to receiving a more convenient and efficient service there, and start to look for the same standards elsewhere; those suppliers that can roll out this system worldwide will stand to benefit.

The same process applied with mass flow meters; when Singapore made these measurement systems mandatory, they started to appear on a voluntary basis at other ports, and some other authorities now have made plans to follow Singapore's suit in making them the norm.

Conclusion

2025 looks set to be a year where the bunker industry is hit by complex challenges and forced to adapt.

Those best able to do so will be those with strong financial backing, a footprint in multiple markets around the world and a management and operational set-up willing and able to adapt at speed when the market changes.

Those companies without these attributes will face the toughest challenges, particularly the smaller firms, and may become targets for acquisition or lose staff. 

But those on a stronger footing may find significant opportunities for profit as changing market realities bring the possibility of higher margins.